How Are Trust Assets Invested?

A modern day estate plan typically includes a wide variety of estate planning tools and strategies that go beyond a simple Last Will and Testament. One of the most common of those tools is a trust agreement. Trusts have evolved over the past century or so to the point where there is a specialized trust for almost any estate planning objective. All trust, however, have a few basic elements in common, starting with the need to appoint a Trustee. The Trustee of any trust is responsible for administering the trust terms and managing the trust assets. Part of managing those assets usually involves investing them which brings up the question “How are trust assets invested?” Whether you are contemplating the inclusion of a trust in your estate plan or you have been named as the Trustee of someone else’s trust you need to know the answer to that question.While there are numerous and varied different types of trusts, the goal of most of those trusts is to protect and grow the assets held in the trust for the benefit of the trust beneficiaries in the future. One of the primary rules for all Trustees is that they must make prudent investments and act in a fiduciary role. A “fiduciary” role means the Trustee must use the utmost care when managing and/or investing trust assets. In other words, no risky stock market gambles. Instead, a Trustee must use more care than he/she would use with his/her own assets when investing on behalf of a trust.

The trust document itself may provide some guidance with regard to how the trust assets should be invested. Most trust agreements do not leave detailed instructions for the Trustee, instead preferring to appoint a trusted and qualified person as Trustee who can make prudent investment decisions; however, the agreement will at least tell the Trustee what the goal of the trust is. For instance, the trust goal might be to provide for college tuition for the beneficiaries or to provide income to a spouse during his/her retirement years. The stated goal of the trust can tell the Trustee things such as when the trust income will be needed and approximately how much the trust will need to make to achieve the trust objectives.

Beyond the trust goals, a Trustee may be left to make decisions without additional guidance. When that is the case, the “Prudent Investor Rule” must always be kept in mind. That Prudent Investor Rule says that a Trustee should:

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